Chicago Hospital, a taxpaying entity, estimates that it can save $30,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eye-testing machine at a cost of $135,000. No terminal disposal value is expected. Chicago Hospital's required rate of return is 10%. Assume all cash flows occur at year-end except for initial investment amounts. Chicago Hospital uses straight-line depreciation. The income tax rate is 34% for all transactions that affect income taxes. (Click the icon to view the Future Value of $1 factors.) (Click the icon to view the Future Value of Annuity of $1 factors.) (Click the icon to view the Present Value of $1 factors.) EClick the icon to view the Present Value of Annuity of $1 factors.) Read the requirements. Requirement 1. Calculate the following for the special-purpose eye-testing machine: Net present value (NPR) (Round interim calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) The net present value is $

Chicago Hospital, a taxpaying entity, estimates that it can save $30,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eye-testing machine at a cost of $135,000. No terminal disposal value is expected. Chicago Hospital's required rate of return is 10%. Assume all cash flows occur at year-end except for initial investment amounts. Chicago Hospital uses straight-line depreciation. The income tax rate is 34% for all transactions that affect income taxes. (Click the icon to view the Future Value of $1 factors.) (Click the icon to view the Future Value of Annuity of $1 factors.) (Click the icon to view the Present Value of $1 factors.) EClick the icon to view the Present Value of Annuity of $1 factors.) Read the requirements. Requirement 1. Calculate the following for the special-purpose eye-testing machine: Net present value (NPR) (Round interim calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) The net present value is $

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Briggs-Gridley Memorial Hospital, a non-taxpaying entity, is starting a new inpatient heart center on its third floor. The expected patient volume demands will generate $5,000,000 per year in revenues for the next 5 years. The new center will incur operating expenses, excluding depreciation, of $3,000,000 per year for the next 5 years. The initial cost of building and equipment is $7,000,000. Straight-line depreciation is used to estimate depreciation expense, and the building and equipment will be depreciated over a 5 year life to its salvage value of $800,000. The cost of capital for this project is 10%. Compute the NPV to determine the financial feasibility of this project. Compute the IRR to determine the financial feasibility of this project. Compute the NPV to determine the financial feasibility of this project if Briggs-Gridley was a tax-paying entity with a tax rate of 30%. Compute the IRR to determine the financial feasibility of this project if Briggs-Gridley was a…
A road construction company is considering the purchase of a gravel hauler as it prepares for a new season of rural road construction. The hauler will cost $110,000, last six years with a salvage value of $20,000, and reduce annual maintenance, insurance, and labour costs by $30,000 per year. The after-tax MARR is 9% and the corporate tax rate is 55%. a. What is the exact after-tax IRR for this purchase? b. What is the approximate after-tax IRR for this purchase? c. Should the company buy the gravel hauler? Why or why not?
Tanner Corporation is considering the acquisition of a new machine that is expected to produce annual savings in cash operating costs of $70,000 before income taxes. The machine costs $244,000, has a useful life of five years, and no salvage value. Tanner uses straight-line depreciation on all assets, is subject to a 30% income tax rate, and has an after-tax hurdle rate of 8 %. FV of $1 at FV of an ordinary annuity at PV of $1 at PV of an ordinary annuity at Yr .8% 8% 8% 8% 1 1.080 1.000 0.926 0.926 2 1.166 2.080 0.857 1.783 3 1.260 3.246 0.794 2.577 4 1.360 4.506 0.735 3.312 5 1.469 5.867 0.681 3.993 6 1.587 7.336 0.630 4.623 Required: If the machine's accounting rate of return on the initial investment is 6%. Compute the machine's net present value
Acompany is evaluating the addition of equipment to its presentoperations. They need to purchase equipment for $160,000. The five year MACRS GDS Recovery Method is appropriate forthe investment and the total tax rate (federal plus state) is 40%. Gross revenue is expected to be $30,000/year while maintenance costs are expected to be $5,000/year. It is expected that the operation will be shut down at the end of the fourth year with a salvage value of $20,000.1-Prepare a table showing your development of the ATCF's.
Your firm needs a computerized machine tool lathe which costs $50,000 and requires $12,000 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category, and neither bonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 12 percent.Calculate the depreciation tax shield for this project in year 3. (Round your answer to 2 decimal places.)
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The possibility of acquiring new machinery at a cost of $ 40,000 is being evaluated, which may be depreciated using the 5-year MACRS method. The machine should save $20,000 annually over its 5-year life and maintenance costs are estimated at $ 7,650 annually. If the company is taxed at a rate of 39%, determine if the investment meets the requirement of providing a minimum return of 11.5% after taxes (After-Tax analysis). Assume that at the end of its useful life, the machine will sell for $ 8,750. If the average inflation rate for the period is estimated at 2.7%, Calculate the real return on the investment after considering inflation. Determine the highest starting price that can be paid to meet the MARR Make your calculations in excel in a clear and orderly way, including any table you need
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Acompany is evaluating the addition of equipment to its presentoperations. They need to purchase equipment for $160,000. The five year MACRS GDS Recovery Method is appropriate forthe investment and the total tax rate (federal plus state) is 40%. Gross revenue is expected to be $30,000/year while maintenance costs are expected to be $5,000/year. It is expected that the operation will be shut down at the end of the fourth year with a salvage value of $20,000. 2-Draw a BTCFD
Colorado Cleaning has a 5-year maximum acceptable payback period. The firm is considering the purchase of a new washing machine and must choose between two alternative The first machine requires an initial investment of $25,000 and generates annual after-tax cash inflows of $6,500 for each of the next 8 years. The second machine requires an initial investment of $75,000 and provides an annual cash inflow after taxes of $9,500 for 15 years. Which machine should the firm accept? Why?